WORKSHOP IN POL'TICAL THEORY AND POLICY ANAU'StS 513 NORTH PARK INDIANA UNIVERSITY BLQOMfNGTON, INDIANA 47408-3186 Property Rights and Transformations in Russia: Institutional Change in the Far North by Gail Osherenko, Esq. Senior Fellow Dickey Center Institute of Arctic Studies Dartmouth College 6193 Murdough Center Hanover, NH 03755-3560 USA Telephone 603-646-1396 I Fax 603-646-1279 Email: [email protected] Submitted to Europe -Asia Studies for publication in 1995. (April 1995) Property Rights and Transformations in Russia: Institutional Change in the Far North This paper is an in-depth study of the transformation of property rights systems in a far northern region of Russia-the Yamal Peninsula.1 Although the region is remote, the issues are central to larger questions, induding development policy, assistance by international lending institutions in the rebuilding of the Russian economy, and tailoring of privatization policy to achieve multiple policy goals of a culturally and environmentally diverse society. Thus, the questions raised here reach beyond Russia to touch on I issues of equity and sustainability, as well as successful economic transformation. The system of property rights that emerges on Yamal will have a powerful impact on the culture and economy of the reindeer herding Nenets who have lived there for centuries. The property rights system developed there will also determine, in large measure, whether the indigenous local people have a say in or even benefit from development of the supergiant gas fields on the Peninsula.2 As potential western investors know from I experience elsewhere in the Circumpolar North, the vast energy resources of Yamal could be developed in a more secure political environment with (rather than without) the support of indigenous residents. This detailed study of the Yamal Peninsula elucidates the larger principle that the economic transformation in Russia needs to be supported through institutional development, especially through the allocation of property rights in a manner that protects local economies and allows the indigenous population to participate in decision making as well as share in Property Rights and Transformation 1 Osherenko - April 26,1995 the benefits of development. As experience in Alaska and across the Canadian North demonstrates, according substantial property and even political rights to indigenous peoples need not constitute a barrier to larger national agendas for development of oil and gas resources.3 Privatization plays a central role in Russian policy for transforming the Russian economy to a market system, but as others have pointed out, the achievements to date fall far short of achieving a shift to a market economy. Michael McFaul, in a recent article in World Politics, attributed the failure to transform Russia's economy to the inattention paid to dismantling "old I Soviet institutional arrangements governing property rights of large enterprises."4 McFaul advocates the exercise of state power to create institutions that support and stimulate a market economy and enforce hard budget constraints for large enterprises, such as a legal code regarding private property, regulation of corporations, and a social safety net.5 Additionally, he explains how the failure to transform and develop political institutions has hampered de monopolization of the economy, left workers dependent on enterprise directors to provide all social services, concentrated ownership and power in the directors of enterprises, and thereby undermined the success of I economic reforms. Beginning from the same premise-that institutions are key determinants in social and economic outcomes, I have adopted a narrower geographic and topical focus than McFaul in order to illustrate the importance of institutional change to a successful as well as equitable and sustainable economic transformation. This paper describes and characterizes the three types of property crucial to the local reindeer herding economy predominant on the Yamal Peninsula: (1) reindeer, (2) the economic infrastructure or productive Property Rights and Transformation 2 Osherenko - April 26,1995 arrangements for processing, storing, marketing and transporting reindeer meat and other products, and (3) land. The paper examines the shifts in rights to each of these types of property during and following the Soviet period, and considers the environmental, social, and economic impacts likely to emerge from the combination of property rights developed to deal with each type of property. The first section of this essay provides the geographic, political, and historical background necessary to understand the current situation. The second section elucidates the concept of property rights by defining four broad I categories of rights: proprietary, exclusionary, disposition and use rights. The third section draws on this lexicon of rights to describe the current situation with regard to each type of property on Yamal and the interplay among alternative structures of property rights. The fourth and final substantive section considers options for the future and offers recommendations to international lenders and those involved in aid to and reform of .the Russian economy. It highlights the importance of designing property rights arrangements that foster both local and national economic well-being. I I. Background In the later part of the 18th and first half of the 19th centuries, the hunting/foraging culture of tundra Samoyeds (Nenets) who owned small domestic herds of reindeer for transport developed into a radically different form of large scale reindeer breeding that relied on herding rather than hunting for food production. Anthropologist Igor Krupnik6 sought to explain the causal factors that brought about the transformation. He concluded that •-. Nenets were able to make this radical and successful economic and social Property Rights and Transformation 3 Osherenko - April 26,19,95 transformation due to a remarkable convergence of climatic and social factors. Faced with stressful, in fact, crisis conditions, Nenets (and some other inland Siberian tundra reindeer breeders) reconfigured their economy over the relatively short span of 150-200 years.7 Today, large scale domestic reindeer breeding remains the backbone of Nenets economy and culture in the Yamal- Nenets Autonomous Okrug. On the Yamal Peninsula, Nenets and some Khanty living in canvas and reindeer hide teepees move with their families and the herds to designated pastures in a six-season rotational cycle. Slightly over half of the 9,000 indigenous people of the Yamalskii Raion lead a I nomadic or semi-nomadic life. INSERT MAP 1 ABOUT HERE The Yamal Peninsula emerges from the northeastern foothills of the Urals and the mouth of the Ob River and stretches north to latitudes comparable to Pond Inlet in the Canadian North and Point Barrow in Alaska. (See map 1.) This large finger of tundra and wooded tundra land covers I 122,000 square kilometers, all north of the Arctic Circle. The west and north coast border the Kara Sea; the east coast, Ob Bay. Politically, the Peninsula lies within the Yamal-Nenets Autonomous Okrug. Of the 6 districts (raiony) in the Okrug, one Yamalskii (Yamal District), with its administrative center in the town of Yarsale, covers most of the Peninsula. The Priuralskii Raion, headquartered in Aksarka, includes the base of the peninsula and contains only one sovkhoz—Baidaratskii. In the Yamalskii Raion three large state farms (the sovkhozes Yamalskii, Yarsalinskii, and Panaevskii) today direct Property Rights and Transformation 4 Osherenko - April 26,1995 Map 1 YAMAL PENINSULA GYDAN PENINSULA i —— Proposed Pipeline • • - Alternative Pipeline Completed Railroad linn Proposed Railroad . .m«^' '« TAZ i PENINSULA Salekhard 50 100 150 5 editor G. Oshcrcnko; cartographer, Grcg Ncmcl Scale (Kilometen) Source: Redrawn from HBT Agra, Calgary, and local maps. Reprinted with the permission of V.H. Winston and Son, Inc. and previously appeared in Post-Soviet Geography (April 1995). the main economic activity of indigenous peoples - reindeer breeding/herding — as well as fur farming, hunting, dairy and livestock breeding. Two fish factories-Poiko and Novy Pon--conduct commercial fishing.8 In the 1970s, reindeer husbandry was considered one of the most productive branches of the economy.9 It continues to be the main source of meat for the indigenous population. Oil and gas development is a relative newcomer to the peninsula, although oil and gas production to the south and east fuels the economy of the Okrug.10 With the discovery of the huge Bovanenkova and other natural I gas fields (see map), Nadymgazprom (the branch of the Russian State gas company with a monopoly in this geographic region)11 plays an increasing role in shaping the future of Yamal. At the federal level, the Russian Ministry of Fuel and Energy exercises regulatory and policy authority for development of the gas and oil fields and related transportation network, and the Russian Ministry of Ecology and Natural Resources is responsible for environmental protection. The major non-Russian player is Amoco Corporation of Houston, Texas, the only foreign company to have established offices in Nadym ,12 For the last 60-70 years the Soviet government imposed its own I institutions upon the political and economic system developed by indigenous people. The government forced collectivization, industrialization, and modernization of the economy and settled much of the population in villages and towns.